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Was Our Prediction Correct?

In 2015, we began to recognize several market conditions that we believed would become a growing trend. That trend was that:

  • Investors would invest in the markets with the highest potential returns
  • New historically-non-real-estate investors would enter the rental property market
  • They would pay all cash unless they were able to leverage their investment with reasonable investor loans

This market insight along with the recognition of market inefficiencies was the genesis of NoteSchool’s Turnkey Flipping Academy where we created solutions to a market problem.

Was our prediction correct?

According to the research completed by Homeunion and published in their recently released 2017 National Single-Family Research Report; yes, the prediction was correct and the trend will likely continue to grow.

In this report, the Opportunity Ranking and High Demand Ranking both show opportunity in some western markets outside what we believe is the “sweet spot” of the mid-west and southeast, but they also note that the out-of-reach prices for both investment and traditional homes make the cost of investment very high.

Further in the report, it shows that investors are seeking opportunities in yield by investing in the solid, stable, yet high yielding cities within states such as:

  • Ohio
  • Tennessee
  • Michigan
  • Georgia
  • Illinois
  • North Carolina
  • Florida

All of these states are in our sweet spot. Cap rates in these areas, all of which are over 7%, lead all other areas with the exception of Philadelphia, which comes in 4th.

The Investors

The report from Homeunion says:

“As the markets slowly recovered, investors realigned their portfolios into real estate to take advantage of the low cost of capital and stable returns. Moreover, investors wary of future volatile swing in the global markets and facing pending retirement transitioned to safety plays rather than relying on enthusiasm in the stock market. Immediately following the U.S. election, for example, stock futures plummeted. The turnaround in the equities markets was almost immediate and resulted in a two-month rally. Although the stock market recently reached an all-time high, concerns about the ongoing strength of the current bull market pushed capital into rental assets.

*Emphasis added.

Once again we noticed this trend and predicted that it would continue. This trend simply makes sense as “stock market refugees” seek safer and steadier returns in value-buy real estate.

It is important to understand that these investors did not enter the real estate market by learning how to find the properties, fix the properties, load tenants or manage the properties; rather they purchased turnkey rental property!

With or without financing?

After the initial real estate crash, cash investors swept into the market. In fact, the “cash is king” mantra has ruled the single-family home rental market investment since 2007. That is about to change:

Leveraged acquisitions are expected to surpass cash deals for the first time since 2007. Cash purchases were very attractive after the mortgage markets froze. Attractive rates are luring investors willing to acquire assets with loans.

The final ingredient in our turnkey model is to offer turnkey rental investors better than bank financing. Shorter terms and lower interest is what the market demands. We can provide it by offering properly structured purchases using seller financing. That’s the key.

If you provide a solution to a market problem, you will see unlimited opportunities.


Kevin Shortle

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